Save Article

Group May Bid for Potash

By

Costas Paris And

Edward Welsch

Updated Sept. 8, 2010 12:01 a.m. ET

The Chinese state-owned chemical company Sinochem Corp. has approached Singapore's state investment company, Temasek Holdings, to discuss the potential creation of a bidding consortium for
Potash Corp. of Saskatchewan,
a person familiar with the matter said Tuesday.

The move comes as companies from China—one of the world's largest importers of the fertilizer potash—weigh their options to compete with a hostile, $39 billion takeover bid by
BHP Billiton Ltd.
amid continued efforts to sustain and expand the food supply of the world's most populous country. Although Potash Corp. rejected last month's bid as "grossly inadequate," a competing bid led by China could prove unwelcome to the Canadian province, which holds the world's biggest reserves of potash, and its export cartel, which is keen to keep a grip on its pricing power.

Temasek has "been approached by Sinochem to participate in a bidding consortium that might also include private-sector companies," the person said. "But it's very premature. Talks are in early stages," the person said. "No decision has been taken yet. It will become more clear within the next two weeks or so."

In a video posted on Potash's website Tuesday, Chief Executive Bill Doylesaid the company was in talks with a variety of potential bidders, and was confident it would attract a higher offer than BHP's $130-a-share offer. He also held out the prospect that Potash could do well without a merger partner.

"Potash is essential for global food production, so there's a wide universe of potentially interested parties," Mr. Doyle said in the video. "While we continue to engage interested parties, we believe, and many of our shareholders agree, that Potash Corp. is poised to achieve outstanding results as an independent, standalone company that far surpass BHP's inadequate offer."

Signalling that investors continue to expect sweeter bids for Potash Corp. to emerge, shares again closed well above BHP Billiton's offer price on Tuesday, up 99 cents at $149.49 apiece on the New York Stock Exchange.

Word of Sinochem's approach to Temasek follows a Wall Street Journal report saying Sinochem has hired
HSBC Holdings
PLC to advise it on its options regarding Potash, and an earlier Journal report saying a group led by Chinese private-equity fund Hopu Investment Management Co. was studying the feasibility of a rival bid through a consortium of investors from Canada, the U.S. and Asia, a person familiar with the situation said.

Temasek and
Goldman Sachs Group Inc.
GS 2.08%
are among the founding members of Hopu, but it isn't clear whether the Singaporean company would participate in a consortium on its own or along with Hopu. The person familiar with Sinochem's plans said Tuesday that the consortium would also have to include a third member from the private sector to pass muster with Canadian regulators.

Last week, the investment chief of Canadian pension fund Alberta Investment Management Corp. said he was approached by a Chinese-led consortium looking for a Canadian partner to make the deal less politically explosive in Canada. He declined to identify the consortium.

Sinochem has longstanding ties to Potash Corp., which owns 22% of Sinochem's fertilizer unit. As it increases in population and wealth, China is keen to maintain stable supplies of the potassium-rich salts, a key ingredient in fertilizer.

But any Chinese-led bid would have to overcome resistance from Saskatchewan's government, which is worried that Chinese ownership could hurt prices and endanger revenue. Potash revenue accounted for 15% of the province's budget as recently as 2008, though that is projected to drop to 2% this fiscal year because demand has dropped.

The province's premier, Brad Wall, whose opinion will be sought by federal regulators in charge of approving any deal, said in an interview last week that he would have serious concerns about Chinese ownership of Potash Corp.

Spokesmen for Potash, BHP Billiton and export cartel Canpotex Ltd. declined to comment on Sinochem's approach to Temasek. Canpotex is made up of the province's top producers–Potash Corp.,
Mosaic Co.
MOS 0.90%
and
Agrium Inc.
—distributing and setting prices for potash exported to most markets other than the U.S.

Mark Smith-Windsor, vice president of Saskatoon investment firm MGI Securities, said a state-owned Chinese investor such as Sinochem would probably have to compromise over the ownership structure to succeed in a bid.

"The concern is that the Chinese desire is to maintain stable supply at low prices, which isn't necessarily what an investor or a government here would want," Mr. Smith-Windsor said. "They could do a partnership with an offtake agreement, which guarantees them a certain amount of supply at half the price—or something like that."

Chinese buyers have been bargaining hard for low potash prices against the potash export cartel Canpotex. In some cases, buyers have delayed contract negotiations or refused to sign long-term contracts.

BHP has said it prefers a floating potash market price and ramped up production rather than control over prices by Canpotex. BHP has said its plan would be to "ultimately" market Potash Corp.'s production outside of Canpotex.

Saskatchewan Premier Wall has said in turn that he would consider changing the province's potash royalty regime or imposing conditions on mining licenses if BHP Billiton's takeover endangers Canpotex.